Insurance plays a crucial role in financial planning, providing a safety net during unexpected situations such as medical emergencies. With individuals often purchasing insurance policies through agents or brokers, it’s important to understand how the insurance commission paid to these intermediaries is taxed under the Income Tax Act. Specifically, Section 194D governs the TDS (Tax Deducted at Source) on insurance commission.
In this article, we will explore Section 194D in detail, its implications on insurance commissions, eligibility, TDS rates, exemptions, and penalties. Let’s dive into the essentials of this section to better understand its role in insurance taxation.
Section 194D of the Income Tax Act governs the tax deducted at source (TDS) on any commission, remuneration, or reward paid to insurance agents or brokers for soliciting or procuring insurance business. TDS is also applicable to payments related to the continuance, renewal, or revival of insurance policies.
You may also want to know Section 194B of the Income Tax Act
TDS under Section 194D applies to the person responsible for paying any insurance commission, reward, or remuneration to residents, including:
This section applies only to residents, while commissions paid to non-residents are covered under Section 195. Whether you are an individual, HUF, company, or any other entity, you are liable to deduct TDS under Section 194D.
The person responsible for deducting TDS must do so either:
The deduction should be made at whichever time occurs first.
TDS rates under Section 194D vary based on the type of payee:
If the payee does not provide their PAN, the TDS rate applicable will be 20%, as mandated by Section 206AA.
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There are instances where an agent or broker may apply for non-deduction or deduction at a lower rate by submitting specific forms:
If the deductor fails to deduct TDS on time, an interest penalty is levied:
This interest is calculated from the date TDS was required to be deducted until the actual date of deduction.
There are several exemptions provided under Section 10(10D) of the Income Tax Act for amounts received from life insurance policies. These exemptions include:
Understanding Section 194D is crucial for agents and brokers who receive insurance commissions, as well as for those responsible for making these payments. This section ensures that the correct tax is deducted at the source, simplifying tax compliance for both payers and payees. By staying compliant with Section 194D, taxpayers can avoid penalties and ensure that their tax obligations are fulfilled efficiently.
TDS is applicable if the total commission paid during the financial year exceeds Rs. 15,000.
The TDS rate for individuals and entities other than companies is 5%.
Yes, an agent can submit Form 13 to the tax assessment office to request a reduction or non-deduction of TDS.
If the payee fails to provide a PAN, the applicable TDS rate is 20%, as per Section 206AA.
Yes, amounts received under certain LIC policies with premiums within prescribed limits are exempt from taxation under Section 10(10D).
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